Morals and the Free Society: 2. Is the Perfectly Free Market a “Morally Free Zone”?

Here is the second chunk of the argument. To return to the first chunk, click here. To advance to the third chunk, click here. The complete essay is posted here.

A somewhat different and even stronger version of the claim that a free—or at least ideally free—society does not impose morals is given by David Gauthier in Morals by Agreement (1986, ch. 4). Gauthier goes further than the mere claim of toleration and argues that the free market, wherever it works with perfect efficiency, is a “morally free zone,” meaning that morality is neither needed nor even desirable! In such a social context, instrumental rationality is a sufficient guide to life, and it is the only proper guide: any other principle must only damage people’s lives. Thus, in an ideally free society, morals actually have no place!

Gauthier draws his conclusion from the neoclassical theory of the market. This theory makes several important, idealizing assumptions: that agents in an economy act exclusively as rational, individual utility maximizers, without concern for the utilities of others; that agents have perfect, costless information concerning the availability of goods and services, and concerning the characteristics of those goods and services, and concerning the outcomes of their choices; and that all goods and factors of production are privately owned, with perfect and costless protection of these rights. These assumptions obviously are idealizations, but as Milton Friedman argued in “The Methodology of Positive Economics” (1953), idealizations, like the physicists’ concept of a frictionless plane, can be useful. The gold standard test of a scientific concept, Friedman argued, is the predictive success or failure of the models that employ it. And as Douglas North (1990, 17) observes, although few economists believe that the neoclassical assumptions accurately reflect human behavior, most do believe that they are useful in building economic models.

In any event, it can be shown that under the neoclassical assumptions of perfect competition, “the market equilibrium must also be optimal—no one could be made better off unless someone else were to become worse off” (Gauthier 1986, 89). So, wherever perfect free market conditions may be thought to obtain and every agent has freely adjusted his own actions to those of others, the utilities of each agent are as high as they can be without introducing coercion; i.e., unless some agent is forced to give up some utility for the sake of another agent. In other words, in conditions of perfect competition, people can only interact to mutual benefit, never to one’s or another’s detriment. And more, to each other’s optimal benefit—to the point where everyone has the most utility he can possibly have without forcibly depriving someone else.

This sounds pretty good, and Gauthier indicates that it “may seem to require” us to say that where pure laissez-faire can be implemented, it is morally right (1986, 92–93). Read closely, he does not explicitly endorse this argument—though it is not clear why he wouldn’t—but he does explicitly endorse “a more profound interpretation” of it, according to which “morality has no application to market interaction under the conditions for perfect competition.” His defense of this claim rests on two assumptions about morality. First, morality is “a constraint on the individual pursuit of utility” (1986, 93). In other words, morality is conceived to issue directives only against the pursuit of personal gain in one circumstance or another. There is no other sort of moral rule or guideline. Second, moral constraints must be impartial and not play favorites between individuals (1986, 95). It is this second feature of morality that Gauthier particularly appeals to in defending his claim that morality is inappropriate in a purely free market.

Gauthier begins by observing that a Robinson Crusoe could not complain about the social order, since a solitary, isolated individual has no social order to complain about. He then argues that the free market adds nothing that would differentially worsen the position of a Robinson Crusoe or otherwise give a Robinson Crusoe reasonable grounds for complaint. He notes that the market does not inhibit a person’s free activity, since coercion is verboten. Nor does it impose involuntary costs on anyone, since, roughly, such “externalities” always turn out to depend on the existence of shared resources; e.g., a stream, which is no one’s private property, the pollution of which by one individual imposes an involuntary cost on another. But under conditions of perfect competition, all goods are privately owned. Finally, the “optimality” of outcomes in a purely free market—the fact that no one can get more unless someone else gets less—means that any alternative to the market distribution entails that someone benefits at another’s expense. For, any such alternative (unless of course it makes everyone worse off) deprives someone of a benefit and awards someone else an extra benefit relative to what they otherwise would have had in free interaction with each other, and it’s hard to see how to interpret this other than as robbing Peter to pay Paul—a situation of which Peter may reasonably complain as prejudicial.

Therefore, the free market itself is not prejudicial, since it allows every agent to act freely, imposes no involuntary costs on any agent, and produces an optimal distribution of benefits to everyone. By the same token, any alternative, unless it makes everyone worse off, must be prejudicial, since it must benefit some at the expense of others. Such a prejudicial situation would be the “accomplishment” of any moral directive that people cease to act as economic agents by foregoing their own utilities in certain situations. So, since that is what all moral directives do, on Gauthier’s conception of morality, moral directives can never be appropriate in the context of the free market. Therefore, there is simply no space in a free market for morality to exist. The free market and morality are incompatible structures of human behavior.

Gauthier qualifies this claim in certain ways that I am passing over—in regard to the economic concept of “rent” and also to an agent’s initial allotment of material goods—but I set them aside because they do not affect the points I wish to make about his overall claim. The spirit of the overall claim is akin to Milton Friedman’s claim in Capitalism and Freedom (1962; cf. 1970) that the doctrine of “social responsibility” is “fundamentally subversive” to a free society, sloganized in the famous line, “the social responsibility of business is to increase its profits.” Indeed, Gauthier can be read as providing a serious philosophical argument in support of Friedman’s claims.

Rather than present the free society as open to alternative lifestyles, therefore, Gauthier and Friedman can frankly admit that the free society encourages the bourgeois virtues and discourages their opposites. Certainly Friedman was aware of this link (Burgin 2012, ch. 6). For example, in a private letter to a businessman Friedman wrote, “I would say that a free enterprise system tends to promote a higher standard of morality and a greater relation between values and actions than almost any other. The reason is because it emphasizes individual responsibility. It therefore tends to promote values of self-reliance, of commitment” (Burgin 2012, 189). Despite Friedman’s use of the term “morality” in this statement, however, it seems clear that Friedman conceives the values encouraged by free enterprise as a matter of enlightened self-interest (Burgin 2012, ch. 6). And this, it might be thought, is a minimal sort of morality, if it is morality at all. We have seen that Gauthier thinks it is not.

However, as noted, Gauthier is working with a particular conception of morality, which requires all moral constraints by definition to be constraints on the individual pursuit of utility. This is not the conception of morality I employ here, which I said at the outset can be practically any set of fundamental principles for the conduct of life. Moreover, Gauthier’s argument—to show that the free market is not prejudicial and that moral constraints would only introduce partiality where none had existed before—is not morally neutral. He thinks the situation of a Robinson Crusoe is the appropriate baseline against which to compare free market outcomes. He regards people as free to act whenever coercion is not present. He thinks the institution of property rights is noncoercive and the violation of property rights is coercive. He thinks exchanges that respect property rights constitute “free interaction” and that outcomes that deviate from the outcomes produced by such free interaction are therefore prejudicial. These are all premises of his argument. The point, of course, is not that Gauthier is necessarily wrong about any of these claims. The point is that they represent a certain moral perspective, one which is largely individualistic.

Suppose that—rejecting Gauthier’s claim that morality necessarily constrains the pursuit of individual utility—we insist that virtues such as prudence, industry, initiative, and perseverance are quite as deserving of the name moral virtues as any others. It still has to be acknowledged that the morality they represent, insofar as it is what the free market requires or encourages, is purely one of rational hedonistic self-interest. For, that is the theory of the market. I think that Gauthier was right about this and that he made a significant contribution to moral philosophy by seeing it clearly and reinforcing it with a rigorous argument.

At the heart of the neoclassical theoretical justification for the free market is a moral vision of pure egoistic utility maximization as an ideal. Egoistic utility maximization is presented as a good thing. And to the extent that we can bring about a purely free market, within that context egoistic utility maximization is all the morality we need. Any further requirements or constraints of “morality” would be counterproductive and therefore inappropriate.

Works Cited

Burgin, Angus. 2012. The Great Persuasion: Reinventing Markets since the Great Depression. Harvard University Press.

4 thoughts on “Morals and the Free Society: 2. Is the Perfectly Free Market a “Morally Free Zone”?”

“He regards people as free to act whenever coercion is not present. He thinks the institution of property rights is noncoercive and the violation of property rights is coercive. He thinks exchanges that respect property rights constitute ‘free interaction’ and that outcomes that deviate from the outcomes produced by such free interaction are therefore prejudicial. These are all premises of his argument. The point, of course, is not that Gauthier is necessarily wrong about any of these claims. The point is that they represent a certain moral perspective, one which is largely individualistic.”

Continuing the drift of my earlier comment and your response, I’d say these premises are very tall. If coercion is conceived such that A having effectively zip power to act independently of B is thought to be not coercive, thought to be free, provided only that the processes leading to that outcome were by Gauthier’s non-coercive steps all along the way, then I expect a very tall justification is needed for his conception of coercion.

I don’t know if it’s really fair to say it, but I think he thinks his concept of coercion is straightforward and needs not much justification. He relies heavily on Robinson Crusoe arguments in this portion of the book; i.e., that Robinson Crusoe is not coerced—trivially—so any social arrangement that imposes no strictures on RC that he didn’t face on his lonely island must also be noncoercive. I think he thinks that that is a sufficient argument. I don’t know if he’s right. But I’m not much inclined to challenge his notion of coercion.

So is something like this supposed to be the point: under certain market conditions that we can reasonably-enough approximate, including the establishment and enforcement of private property rights and a ban on coercion, individuals maximizing their subjective utility results in a kind of socially-optimal outcome (again, in subjective utility terms), viz., a Pareto-optimal outcome? And the bourgeois virtues are pretty much a codification of this kind of rational self-interest. So we get a kind of coherence between: (a) a kind of good social result or ideal that is a function of people’s subjective preferences or subjective welfare, (b) individual license to pursue their private interests, and (c) the bourgeois virtues. In this way, we get not only the result that the bourgeois virtues are encouraged (that conditions are typically created in free markets that encourage the development of such virtues), but the result that, via it being okay to simply maximize subjective utility (in these terms), there is a kind of socially-sanctioned “selfish” justification for the bourgeois virtues. Is this anywhere close to being the right general interpretation of your take on Gauthier’s accomplishment?

Rashly assuming that I’m on the right track, here is a question. Given that the relevant elements of human welfare here (both personal and overall social-relational state) are entirely a function of subjective preferences, just why and how are these personal and social ideals (and how they square with each other) important? It is intuitive for me that this relationship is sort of important, but it cannot be the whole story. And my suspicion is that the most important bits of this kind of story include the objective elements – roughly, what we correctly desire or should be preferring to what, not just what we do desire or what we do prefer to what.